CKD Corporation FY2026 Q2 Earnings Report

Financial Highlights

• Net Sales: ¥72.65B
• Operating Income: ¥7.87B
• Net Income: ¥5.38B
• EPS: ¥80.48

Income Statement

Balance Sheet

Cash Flow Statement

Profitability Ratios

Year-over-Year Comparison

Share Information

Dividend Information

Segment Information

Full Year Forecast

Disclaimer

This data was automatically extracted from XBRL files. Please refer to the original disclosure documents for accuracy.

AI Financial Analysis

Executive Summary

CKD (6407) delivered a soft FY2026 Q2 with revenue and profits declining year over year amid operating margin compression, but cash flow and liquidity remained solid. Revenue was 726.5 and fell 4.1% YoY, while operating income of 78.7 declined 14.2% YoY and ordinary income of 79.0 decreased 14.4% YoY. Net income was 53.8, down 15.2% YoY, with EPS at 80.48 JPY. Gross profit was 211.9, yielding a gross margin of 29.2%. The operating margin stood at 10.8% (78.67/726.48), and we estimate it compressed by roughly 130 bps vs last year (from about 12.1% to 10.8%) given the larger drop in operating income vs revenue. Net margin of 7.4% implies an estimated compression of ~100 bps vs last year (from about 8.4%). Non-operating items were essentially neutral (income 4.58 vs expenses 4.25), so the profit decline is primarily operational. Earnings quality was good: operating cash flow of 74.3 exceeded net income (OCF/NI = 1.38x), suggesting solid cash conversion despite weaker earnings. The balance sheet is strong, with a current ratio of 361%, D/E at 0.51x, and ample cash (374.6) relative to short-term loans (50.1). However, capital efficiency is weak: ROE is 3.8% and ROIC is 3.9%, below the 5% warning threshold. Interest coverage is strong at 30.6x, reflecting low financial risk. Capex was modest at 12.0, and OCF minus capex approximates a positive surplus (~62), indicating room to fund investments and potential dividends. The reported calculated payout ratio is 101.1%, which would be unsustainably high if accurate, though dividend data are unreported and this figure may reflect interim timing. The quarter reflects operating deleverage as sales slowed, likely tied to cyclical demand in automation/semiconductor-related end markets. Going forward, margin recovery hinges on volume normalization and cost discipline; FX and demand stabilization will be key. We see near-term headwinds in profitability but a resilient cash position and conservative leverage providing flexibility. Data gaps (SG&A detail, investing CF, dividend amounts) limit full attribution and dividend sustainability analysis.

Profitability Analysis

ROE (3.8%) decomposes into Net Profit Margin (7.4%) × Asset Turnover (0.342x) × Financial Leverage (1.51x). The net margin softened YoY (estimated ~100 bps compression), while asset turnover is low, reflecting a sizable asset base relative to sales; leverage is modest, limiting ROE uplift. The largest contributor to the YoY ROE decline is the net margin deterioration, as operating income fell faster than revenue (14.2% vs 4.1%). Operationally, this points to negative operating leverage—fixed cost absorption weakened as volumes declined, and there may be product mix pressure or pricing discipline in key segments. Non-operating items were near flat, so they did not cushion margin. The change appears cyclical rather than one-time, tied to softer demand in factory automation/semiconductor-related customers; sustainability of improvement will depend on a demand upturn and cost control. Watch for SG&A growth versus revenue; while SG&A detail is unreported, the sharper OI decline signals that overhead or R&D/product costs did not flex down fully with revenue, a potential concern if the soft patch extends.

Growth Assessment

Revenue contracted 4.1% YoY to 726.5, indicating a demand slowdown. Operating income declined 14.2% YoY to 78.7, underperforming sales due to operating deleverage and likely mix effects. Ordinary income and net income fell 14.4% and 15.2%, respectively, reinforcing the profit pressure. Gross margin at 29.2% is reasonable but not enough to offset overhead rigidity. Profit quality is supported by OCF exceeding NI (1.38x), suggesting limited accrual build and some working-capital normalization. Outlook hinges on recovery in automation and semiconductor-related capex cycles, normalization of China demand, and FX tailwinds. Near term, we expect muted top-line growth and margin constrained by under-absorption; medium term, utilization recovery and cost actions could gradually restore operating margin toward prior levels if orders inflect. Non-operating contributions remain small, so core operations must drive the rebound.

Financial Health

Liquidity is robust: current ratio 361% and quick ratio 331% indicate strong near-term solvency. No warning triggers: Current Ratio well above 1.0 and D/E at 0.51x below the 2.0 threshold. Cash and deposits (374.6) comfortably exceed short-term loans (50.1) and cover a large portion of current liabilities (368.1), limiting maturity mismatch risk. Long-term loans are 275.7, with modest interest expense (2.57) and strong interest coverage (30.6x), suggesting manageable debt service. Total equity is 1,412.4 on assets of 2,127.1, implying an equity ratio of roughly 66%, a conservative capital structure. No off-balance sheet obligations were reported; data limitations remain due to unreported items.

Cash Flow Quality

OCF was 74.3, exceeding net income of 53.8 (OCF/NI = 1.38x), signaling good earnings quality. Investing CF is unreported, but capex was 12.0, implying OCF–capex of ~62.3 and indicating capacity to fund investments internally. Financing CF was -41.1, consistent with debt repayment and/or shareholder returns, without stressing liquidity given the cash balance. Working capital appears supportive rather than a drag this quarter, given OCF strength; no clear signs of aggressive working-capital management are evident from the limited data. Free cash flow cannot be fully confirmed due to missing investing CF line items beyond capex.

Dividend Sustainability

Dividend amounts are unreported; however, the calculated payout ratio is shown at 101.1%, which would be unsustainably high on a steady-state basis if accurate. Cash generation (OCF–capex ~62) suggests capacity to fund moderate dividends, but sustainability depends on total investing outflows and the actual dividend level. The strong balance sheet and retained earnings (1,002.0) provide a buffer for temporary over-distribution, but prolonged payout above earnings would pressure capital allocation flexibility. Given data gaps (dividends paid unreported), we treat the payout ratio figure cautiously and look for management guidance on full-year DPS and policy (e.g., DOE or payout targets).

Risk Assessment

Business Risks:

• Cyclical demand in factory automation and semiconductor end-markets leading to volume volatility
• Pricing and mix pressure impacting gross and operating margins
• Supply chain/inventory risk if demand recovery lags
• FX fluctuations (JPY vs USD/EUR/CNY) affecting revenue and input costs
• Competitive intensity in pneumatics and automation components

Financial Risks:

• ROIC at 3.9% below 5% implies weak capital efficiency
• Potential for margin shortfalls to reduce cash generation if downturn persists
• Debt load concentrated in long-term loans (275.7) though currently well covered
• Dividend sustainability risk if payout remains at or above 100% of earnings

Key Concerns:

• Operating margin compression (~130 bps estimated YoY) and negative operating leverage
• Low asset turnover (0.342x) constraining ROE
• Limited non-operating income to offset core weakness
• Data limitations: missing SG&A breakdown, investing CF detail, and dividend amounts

Investment Implications

Key Takeaways:

• Soft topline (-4.1% YoY) with outsized operating profit decline (-14.2%) indicates negative operating leverage
• Margins compressed (operating ~130 bps, net ~100 bps estimated), pressuring ROE to 3.8%
• Cash conversion strong (OCF/NI 1.38x) and OCF–capex positive (~62), underpinning liquidity
• Balance sheet conservative: current ratio 361%, D/E 0.51x, interest coverage 30.6x
• ROIC 3.9% below threshold highlights capital efficiency challenge
• Non-operating result neutral; recovery must come from core operations

Metrics to Watch:

• Order intake and book-to-bill in core automation/semiconductor segments
• Operating margin trajectory and SG&A discipline vs revenue
• Inventory levels and days to detect demand normalization
• FX rates and hedging impact on margins
• Capex plans vs OCF to gauge FCF sustainability
• Dividend guidance (full-year DPS, payout or DOE policy)

Relative Positioning: Financially conservative with strong liquidity and low leverage versus peers, but currently weaker capital efficiency (low ROIC/ROE) and margin pressure leave CKD more sensitive to end-market recovery for profitability normalization.

Disclaimer

This analysis was auto-generated by AI. Please note the following:

• No Guarantee of Accuracy: The accuracy and completeness of this analysis are not guaranteed. For accurate financial data, please refer to the original disclosure documents published on TDnet or other official sources
• Not Investment Advice: This analysis is for general informational purposes only and does not constitute investment advice under applicable securities laws. It is not a recommendation to buy or sell any specific securities
• At Your Own Risk: Investment decisions should be made at your own discretion and risk. We assume no liability for any losses incurred based on this analysis